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If you have a high-deductible health plan, you may also have a health savings account (HSA). An HSA is a special savings or investment account that's meant to pay for medical expenses that aren't covered by your insurance. You can't use it to pay for just anything, though, so take the time to understand what exactly your HSA can cover.
The primary purpose of an HSA is to create a fund you can use to cover your deductible, copays and coinsurance in the event that you incur major medical expenses. It's also a go-to resource for dental treatment, vision care and prescription medications.
You might even use an HSA to fund day-to-day health expenses such as bandages, sunscreen, thermometers and more. Exploring the long list of eligible HSA expenses just might help you get the most from your account.
How Does an HSA Work?
HSAs are tax-advantaged accounts meant for medical expenses that are funded by contributions from you, your employer or both. They can provide a triple benefit in terms of tax savings since you may be able to deduct your contributions, and avoid paying taxes on account interest or investments gains as well as on withdrawals you make.
When you have an approved medical expense, you might use an HSA-provided debit card to pay at your doctor's office, pharmacy or with another approved vendor. Alternatively, your HSA may provide access to online bill payment, checks or a reimbursement process that pays you back for bills and purchases you've covered using other forms of payment.
Access to an HSA account may be provided directly through your employer, or you may create one at a bank, credit union or investment company that acts as an HSA administrator. HSA comparison services such as HSA Search can help you find a provider and weigh your options.
Unlike the money in a flexible-spending account, HSA funds do not need to be spent within a given year. Once you contribute money to an HSA, that money is yours—even if you change employers or health plans.
What Can You Pay for With an HSA?
In addition to big ticket items like deductibles, copays and coinsurance, HSAs can be used to pay for a relatively long list of everyday health-related items. Amazon even has a list of HSA-eligible items you can shop from directly, and tags eligible items in product listings. Here are some examples of products you may be able to purchase with HSA funds:
- Over-the-counter pain relievers, cold medicines and stomach remedies
- Air purifiers and filters
- Feminine hygiene products
- Birth control
- First aid supplies, including bandages
- Orthotics, orthopedic braces and wraps
- Pregnancy and fertility tests
- Contact lenses and supplies
- Psychologist visits
- Acne products
And this is just the tip of the iceberg. The full list of qualifying items is extensive and includes everything from blue light blocking glasses to products that help you quit smoking. Word to the wise: Before spending any HSA money, check with your HSA administrator to make sure your proposed expenses are eligible. Rules can change, and some purchases may require a medical diagnosis to qualify.
When Your HSA Is Not the Best Choice
Of course, the list of things you can't use your HSA to pay for is much longer than the list of eligible expenses. Notably, you can't use your HSA account to pay for insurance premiums, cosmetic procedures or veterinary expenses (unless they're for your HSA-eligible guide dog).
There are a few additional reasons you might not want to use your HSA to pay for qualified expenses. If you're counting on the money in your HSA to cover high deductibles in the event of a major illness, you may not want to deplete your account. Make sure you're maintaining the safety net you need before you start spending.
Using your HSA to pay, even for eligible expenses, can be complicated. The card itself may have restrictions on where you can spend—and on what. For example, your card might not work if you try to use it at a supermarket or convenience store. If you can't run a transaction using your HSA card, you will have to submit your expenses for reimbursement after the fact. It's not the end of the world, but it is an inconvenience that might not be worth the trouble for a few small items.
Using your HSA to pay can save you money by using pre-tax dollars deducted from your paycheck and/or accessing money your employer has provided for just these purposes. But, because your savings are tax-related, they're subject to IRS scrutiny. If you're audited and your expenses turn out to be non-qualified, you could be liable for income taxes and a 20% penalty on the amount you spent.
Spending in Good Health
Using your HSA to restock your medicine cabinet or stock up on items like sunscreen and first-aid supplies might make the most sense if you do so in single, dedicated shopping trips, rather than trying to submit receipts for reimbursement every time you buy a bottle of ibuprofen at the grocery store. Using your HSA for beneficial treatment and expenses—as long as you can afford them—is a clearer win. Needed dental treatment, orthopedic supplies or a new pair of glasses are not only valuable; they can be life-affirming.
If you don't have an HSA but would like to learn more, do some research, ask your employer for information or look for financial institutions that can offer you an account. While HSAs may not provide a universal cure for all of your healthcare-related costs, they can be a valuable device in your financial toolkit.